DL Seminar | Design Choice: Mechanism Design’s Digital Drift
Updated: Apr 25, 2021
By William Kwon
This response was written after attending the Digital Life Seminar on October 7th, 2020, where Lee McGuigan, Jake Goldenfein, and Salome Viljoen delivered their joint research, entitled Design Choice: Mechanism Design’s Digital Drift.
What is Mechanism Design?
Mechanism Design refers to a variety of approaches for allocating resources by designing procedures or mechanisms. Mechanism design guides individual choices so that people produce a desired outcome that is specified in advance. Mechanism designs are central to the construction and governance of the digital platforms we use every day. To coordinate and execute billions of online transactions involving different parties, with a high-level speed and accuracy, institutional mechanism design plays a significant role in automating advertisement delivery, pricing decisions, and brokering the auctioning process.
Conceptual Origin of Mechanism Design
In a theoretical sense, mechanism design started off with a relatively benign presumption of traditional welfare economics; people and the society will be better off if general welfare reaches an optimal state where individuals decisions are mediated through carefully designed mechanisms and incentives.
For welfare economists, mechanism design is an agent of change to realize the above social welfare economist ideology. Mechanism design enables reverse-engineering of individual behaviors and preferences that guide individuals to reach the state of an optimal outcome.
This utilitarian background of Mechanism Design invites two conceptual challenges. First, it presupposes that utilitarian approach, or optimal market status in the arena of digital marketplace, is a superior approach of obtaining an optimal outcome. Second, when giant digital platforms develop such mechanisms to infer individual preferences, these mechanisms border on becoming ‘enhanced digital interrogations.’
Digital Platforms and Mechanism Designs
The above challenges take concrete forms in digital platforms. Designers now have drifted away from the original vision of welfare economists, with giant digital platforms that spoon-feed an inordinate amount of information that helps reverse-engineer and construct mechanisms. Designers not only have access to information but also have the latitude to exploit such information to uncover hidden preferences of private actors. Hence, while mechanism design started as a process of drawing information of different actors with staged encounters, it now has the potential to allow digital platforms to resolve information asymmetry and helps them uncover undisclosed private information.
Monopoly in Digital Platforms
As of October 20th, 2020, the United States Department of Justice accused Google of its monopolistic operations in search and search advertisements. Although it may take several years to see the result of this lawsuit, it speaks to how the public sees the monopolistic power of digital platform companies.
Digital platforms have evolved into giant ecosystems capable of collecting billions of sets of information. Mechanism design evolved with digital platforms, achieving an unprecedented level of power in predicting and obtaining personal information.
Given that the current regulatory regime revolves around the traditional framework of ‘consumer welfare’, it might be difficult to prove that digital platforms’ attempt to utilize mechanism designs to promote optimal state caused harm to society. However, it is worth noting that the very evolution of mechanism design might be a call for a new approach in appraising the monopolistic power of digital platforms, which should then lead to a new regulatory framework.